Martin Lewis has clarified the rules around tax on savings. He explained some key principles for savers to remember in response to a question on his BBC podcast. The personal finance expert shared his thoughts after a fan said they were thinking about keeping any extra cash “under my mattress” rather than putting it in a savings account.
They explained: “I fear that it will be taken or taxed if I do anything else. Do you think I’m being too cynical?” Mr Lewis said initially that he doesn’t have a problem with people being cynical. Yet he said this should be “tempered with practicality”.
The savings expert went on to explain why keeping your cash stashed away at home may not be the best move. Mr Lewis said he would presume the person was not talking about their earnings which could be subject to income tax, but rather funds that they already have.
He clarified a misunderstanding here: “Your savings are not taxed, it is the interest you earn, the extra money that savings generates you, that are taxed.
“You’re not going to lose money from tax on savings, you will just lose some of the interest. The same is true if you invest in, it’s the capital gains tax, the amount that you pay on the profits, you might also pay income tax on the dividends as well, but it’s on what you make, it’s not on the amount that you have.”
Comparing the two choices
Mr Lewis went on to compare the options of keeping your savings under your bed versus putting them in a savings account. He first explained the fact that by putting your cash in any savings account provided by a regulated UK provider, you get the FSCS protection for your cash (Financial Services Compensation Scheme).
This means your cash is protected up to the value of £120,000 should your bank provider fail. This amount applies to each person for each account provider where they have savings.
This guarantee was previously up to £85,000, with the limit increasing from December 1, 2025. Comparing this with keeping your cash at home, Mr Lewis said: “If you keep money under your mattress, and somebody breaks in and steals the money, even the best home insurance policy normally only covers you for up to £1,000 worth of cash, and also you’re having to pay for the insurance policy for up to £1,000 worth of cash.
“Whereas money in a bank or financial institution that is paying interest, you are being paid effectively to put your money there, and you get the protection on top.” Mr Lewis finished his answer with an emphatic message.
He said: “So if we’re just talking really sensibly on a like-for-like comparison, between keeping money under your mattress and putting it in a savings account, it is an absolute no-brainer. Put it in a savings account.”
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